“It was in everyone else’s interests that the towers were left to burn”

July 25, 2021

An interview with Prof Brian Brivati, author of Arif Naqvi’s Abraaj Group & the Geopolitics of Karachi Electric

“It was in everyone else’s interests that the towers were left to burn”

Dr Brian Brivati, the acclaimed human rights professor, argues in a well-researched work that Arif Naqvi’s fall was directly related to the sale of Karachi Electric and the geopolitics involving Chinese and American powers. Naqvi, according to Prof Brivati fell a victim to the big game. His Abraaj group didn’t fall, it was made to fall; it didn’t catch fire, it was put on fire and there is little doubt that the treatment he is getting would not be given to anyone in the same position with a different origin and a different status.

Murtaza Ali Shah sat down with Prof Brivati to talk about the book. Extracts:

The News on Sunday (TNS): What is the story about Arif Naqvi and why did you find it interesting?

Dr Brain Brivati (BB): Arif Naqvi’s is the story of a Pakistani patriot destroyed by geopolitics. It is a cautionary tale for every CEO in the world whose interests diverge from those of superpowers in their post-globalisation trade wars. It is a story of identity. It is about the moments in one’s life when one discovers who their real friends are and learns the wisdom of the Godfather adage: Keep your friends close and your enemies closer. It is also about two kinds of realpolitik: the realpolitik of the US-China competition for dominant influence in Pakistan and more widely the confrontation between China’s Belt and Road Initiative and the CPEC and the US response to it. It is also about the reality of race, identity and place in the cosmopolitan West. It is about race in the sense of being or not being “one of us” in Dubai, London and New York, an outcome of both white exclusiveness and Arab exclusiveness. It is about identity in the sense of a life story of ambition, service and ultimately the destruction of that career by blind optimism. Finally, it is about place in the sense of belonging to a nation state that can protect you when the myth of globalisation falls away: Abraaj did not have a state to protect it.

TNS: Your book suggests that Arif Naqvi was taken down, Abraaj didn’t catch fire but was put on fire, Naqvi was made to fall. Why?

BB: Abraaj means towers or towering in Arabic and my thesis is that these towers were torched they did not collapse of their own accord. These towers were left to burn because of geopolitical interests, blind ambition within the firm and the avarice of US and UK private equity companies. It is this interplay that destroyed the firm assisted by some crucial mistakes by Arif Naqvi and his team at the centre which I highlighted in my book in relation to the events of 2018 after the first articles emerged from the Wall Street Journal (WSJ).

TNS: What role did the sale of Karachi Electric play in the fall of Arif Naqvi?

BB: The sale of K-Electric to the Chinese is at the heart of this case. The unexpected delays created the cash flow crisis that in turn created a part of the internal vulnerability of Abraaj to the external destruction of its reputation and brought out the dissent by many of its senior staff who felt that their future careers were threatened by Abraaj’s growth. The US has been fighting a long rearguard action against the Belt and Road Initiative through means fair and foul. Specifically, it has been trying to find an answer to China’s increasing influence in Pakistan through the CPEC and through the development of the String of Pearls ports that form a part of the broader creation of a Chinese-dominated world economy.

In 2016, the US private equity industry was rewarded for its political donations with a sympathetic regime in Washington. The anti-China lobby, which had been building support under Obama, now also had a new cheerleader in the White House. Abraaj was a victim of a campaign to counter the growing influence of China in Pakistan by slowing down both the progress of the Belt and Road Initiative (BRI) and implementation of the China Pakistan Economic Corridor (CPEC) and, specifically, preventing Karachi Electric from falling into Chinese hands. The knock-on effects of delaying the deal created a cash crunch in Abraaj, the ‘Arab’ private equity company, run by a Pakistani, shutting it down before it got big enough to achieve stable profitability. Had its global fund, APEF VI, reached its $6 billion close, the company would have reached cash flow growth, with an annual management fee income of $120 million from this fund and lower costs because of a reduced headcount, making it extremely profitable and significantly harder for Western firms to break into the emerging markets that Abraaj dominated. It was in everyone else’s interests that the towers be left to burn.

TNS: What does your research on Arif Naqvi reveal, as opposed to the dominant view established through reporting based allegations of the Department of Justice (DoJ) against Naqvi?

BB: To understand what is wrong with the DoJ indictment and its press releases in the WSJ, you have to look at the structure of Abraaj. Abraaj had a holding company that had no US investors at all. This was separate from the fund management company which looked after each of the funds. The holding company was solvent and was where the group assets and liabilities were housed and where the secured and unsecured creditors made claims once the “run-on-the-bank’ commenced, but its failure should have ordinarily had no impact on the ring-fenced funds that had completely different investors. The US investors that initially complained were concentrated in one fund, the health fund. By the time the articles first appeared in February 2018, that had already been repaid with interest. There were no other problems with any other investors or any other funds, no objections from any other investors or any other funds.

Moreover, at the point of liquidation, the company assets were greater than its liabilities. So if the restructuring plan [earlier] developed with the help of the globally renowned restructuring company, Houlhan Lokey, had been implemented– as first suggested in May 2018 before the liquidation process commenced and then in August 2018 after the liquidators were appointed – then all creditors would have been repaid [by then]. Remember, no investors had lost any money at all at that point. Any restructuring was irrationally sabotaged by unsecured investors who insisted that the holding company and the fund management company be placed under the control of separate liquidators which directly led to the destruction of the group. Why?

The tiny number of US investors in the Health fund who had complained had been allowed to draw back their money but they remained committed to their LPAs which would have seen their money deployed later on. That money had been returned with interest. However, when Abraaj requested for a new drawdown in January 2018 to finance the acquisition of a hospital business in South Africa, these US investors refused to honour their contractual agreements to pay, leaving Abraaj in an unenviable position of either taking the investors to court which would have entailed reputational harm whilst the firm was fundraising for another fund, or seek a compromise, but their efforts were sabotaged by the anonymous leaks to the newspaper which led to the February 2018 articles.

This was not a corrupt company or an organised criminal conspiracy and the real fairy tale here is the one that claims that it was. From 2002 until 2017 this was a relatively successful private equity firm operating in interesting places and interesting ways. Period.

TNS: Did Naqvi steal $385 million that he has been repeatedly accused of doing in the press? If not, what happened to the money?

BB: No, he did not steal the money from his firm. He was paid like every other founder of a private equity company is paid. Only in his case, he paid himself less.

There have been a lot of allegations in the media that the money is missing but these are difficult to trace back to the actual missing funds. According to the replies made by Naqvi to questions from journalists, when he was still speaking to journalists, every penny of Abraaj money is accounted for. In other words, every single movement of cash was accompanied by a debit or a credit. If money did go to Naqvi, it was recorded as a liability from him towards the group rather than a payment of overdue bonus to him. In my opinion, we should instead be asking: was he entitled to it or not? At which point, I believe it's very important to have a look at his remuneration agreement. I believe that it's very important. Look at the minutes of board meetings to see what he was entitled to. And if he took more than he was entitled to, then hold him to account if no satisfactory explanation is provided. Also, let us not forget that Abraaj was a private company, not a publicly listed one, so any explanations are a matter for the shareholders of that company, not the investors in the funds managed by it. If he just took what was legally his, then that should emerge as well, a fact which, it appears, can only be disclosed when he faces a court on the charges that the indictment has placed on him. Apparently, his lawyers have stopped him from discussing these issues in the media as being prejudicial to his interests.

No claim has been lodged by the liquidators against Naqvi. Yes, an information request has been filed to 15 or 20 or 25 banks to trace the money, but that is neither a claim nor an assertion. Still it is the basis on which these outlandish numbers come from. It has been three years and $100 million have been spent in fees since those liquidators were appointed. If it is only during the UK extradition proceedings against Mr Naqvi, that this request is made and then leaked to the Wall Street Journal then something doesn't quite smell right. Similarly, Deloitte, as a liquidator of the asset management business, filed two letters in a UK court in support of the US extradition request to make the case against Naqvi a criminal one. That is a highly unusual step for a liquidator, who is seeking a return of funds.

“It was in everyone else’s interests that the towers were left to burn”

TNS: Did Arif Naqvi pay bribes to Pakistani politicians?

BB: Naqvi raised political donations for Imran Khan, his charities spent US$150 million in Pakistan and the funds he managed created hundreds of millions of dollars in profits, so did he have influence? Yes, he did. But if the DoJ had evidence beyond some garbled references in a long email exchange about donations, then Naqvi would have been charged under the Foreign Corrupt Practices Act. He has not been, which suggests to me, that they have no evidence because no bribes were paid. It is just about the only thing the two main political parties in Pakistan have agreed on since the foundation of the state of Pakistan. Both came out strongly to deny it. Other political markets had seen similar increases in political donations, in particular the US. The top thirty private equity firms contributed US$68.7 million to federal elections and candidates from 2007 to 2018, with 54 percent of the donations going to the Republicans and 46 percent to the Democrats. To put that number in perspective, private equity donations dwarfed the tobacco industry’s political spending of US$52.6 million since 2000; about a third more money in half the time. And the federal campaign spending has rapidly accelerated and jumped seven-fold from the 2010 to 2018 election cycles according to research by the Center for Popular Democracy. These record levels of spending were then smashed in the 2020 election when employees of private equity and other investment firms, excluding hedge funds, contributed US$132 million to candidates, parties, political action committees and outside groups up to 30 September 2020, according to the Center for Responsive Politics.

TNS: Do you think Arif Naqvi has been singled out by the capitalist corporate interests who didn’t like an outsider, a Pakistani, amidst their ranks?

BB: I do not think he was singled out because he was a Pakistani, I think he was weaker and more vulnerable once he had been targeted because he was a Pakistani. There was no one to close ranks around him, he was in Dubai but he was not of Dubai. He did not belong to the private equity club either.

TNS: There is an anti-Arif Naqvi narrative in the western press. Why did you set out to challenge that narrative?

BB: I was a professor of human rights and life writing and now I write books and do international capacity building. With the world on hold, I needed a lockdown project and this was it. As a biographer, this was a man with an incredible life story. As a human rights advocate, this was a victim of the US-UK extradition treaty whom no one was talking about except for Rupert Murdoch’s journalists with their own axe to grind.

TNS: If Arif Naqvi was taken down, as you suggest, how was he taken down?

BB: Abraaj was taken down in a series of well-timed precision strikes from the autumn of 2017 to the spring of 2018. Each time [when] it appeared as though the company had found a route out of the crisis, another blow landed. Abraaj had been trying to complete the sale of Karachi Electric to Shanghai Electric for US$1.77 billion since October 2016, when it signed definitive documentation with Shanghai Electric to conclude the transaction. The deal kept being blocked. A civil war erupted at the top of Abraaj over the Karachi Electric sale to the Chinese and as a result of Naqvi trying to push the deal through, despite clear US opposition; why? Because he was a Pakistani patriot determined to do the right deal for Pakistan. He was supported in that endeavour by three successive prime ministers of the country from deeply opposing ideological divides. Did the news stories feed the civil war in Abraaj? Or were they a product of it, designed to stop the single fund APEF VI from being launched, or the K-Electric transaction from being completed? Just as that transaction appeared poised to complete and APEF VI was rolling relentlessly towards a successful first close, an untraceable anonymous email, written in a style that was meant to look like it was from a non-native English speaker, appeared in the inboxes of key stakeholders questioning the commingling of Abraaj funds and other practices. When that failed to stop APEF VI, which did in fact achieve a successful first close, a liquidity pincer was applied. This led to rumours in the US media and a daily assault on the reputation of the firm followed. As a result, it folded. At the centre of it all were the objections led by a small group of investors, mostly US organisations, including the Bill and Melinda Gates Foundation (BMGF) and the US government’s Overseas Private Investment Corporation (OPIC), in relation to the use of funds in AGHF. Two independent auditors clarified that indeed all funds had been either invested or returned and no funds were missing although some had been used outside the fund structure. Abraaj in turn argued it was permitted under the fund formation documents to do so and produced legal opinions from Freshfields, one of the most prominent law firms in the world. The US-led investors insisted on a third audit by an unknown firm that senior Abraaj managers claim to have never seen but which was quoted in the media. The Wall Street Journal and New York Times broke this story whilst discussions were in progress with the investors.

TNS: What difference did the election of Donald Trump make?

BB: The election of Donald Trump changed the foreign policy of the US and took the US private equity interests into the heart of the administration. The gloves came off and in a slew of direct confrontations, the trade war with China was enhanced. The blocking of the K-Electric deal was one part of that equation and Arif Naqvi’s vocal criticisms of the Trump administration and its “America First” policy, alongside his warm endorsements of the BRI plan of the Chinese certainly did not endear him to US policymakers in charge at that time.

TNS: You have met Arif Naqvi, what is your view of him? Is he a crook?

BB: No, he is not a crook. He is a Pakistani patriot. A passionate advocate of impact investing and as described by one of his oldest friends from school, a blind optimist. He was also a great deal maker and he bested a lot of people in business, most of whom seem to have shared all their favourite anti-Arif Naqvi stories with the WSJ. But what do these stories amount to in the end? I would suggest that there is little more than sour grapes and water cooler gossip in much of what has been published on that side of the story in the other book. The wild times at Abraaj turned out to be not so wild but actually rather tame. But much more importantly he had two kinds of naivety. Firstly, he was well informed and an effective communicator on the world stage but he fatally underestimated the way in which sovereign impunity can operate to destroy those who oppose the interests of the superpowers. Secondly, he listened uncritically to his advisers. The journalists in this story exhibit his characteristics of behaving with power without responsibility but that pales into insignificance beside the behaviour of the legal and financial advisers who had their fee guzzling snots in the trough of Abraaj from inception to destruction and beyond. A source told me that they estimate the fee taken from the liquidation process of Abraaj has directly been US$100 million to date. But even before that, Freshfields endorsed the operation of the funds and the relationship between the holding company which had its own investors and the fund management company which actually ran the funds. They clearly state in their legal advice, for example, that the movement of funds was permitted by the LPAs and that Abraaj was under no obligation to show limited partners actual bank statements. The auditors KPMG signed off on the entire structure and operation of the firm. When the Dubai regulator investigator appointed another auditor Deloitte’s, they also signed off on the accounts stating that no funds were missing but suggested that funds have been moved around. If there is a further fallout that should come out of this case it should be the creation of mechanisms that hold these kinds of professional advisers to account. If they were correct in their advice, why does Arif Naqvi face an indictment for 291 years in jail? And if they were wrong, why are they not in court in place of him or next to him?

TNS: Can Naqvi get a fair trial in the US if he is extradited?

BB: Murtaza, you covered the trial of Arif Naqvi yourself at the magistrates’ courts in London. I was struck by the balanced and factual reporting of the entire proceedings by you but the highlighting of only potentially negative things by the Wall Street Journal. Indeed, when the case was adjourned in June 2020 when Naqvi’s lawyers had made a forceful case which resulted in the US making two diplomatic assurances in court to prevent their case from unravelling, the WSJ didn’t cover that fact at all. At the same time, it appears that the Government of Pakistan has done nothing to say a word in favour of one of its own citizens, especially if it is being alleged that the former and current govt leaders were dear friends of Naqvi’s. No less than a former prime minister, Shahid Khaqan Abbasi acknowledged in an interview to Dawn as well as in a quote for my book that “if Abraaj had been allowed to sell its shares in K-Electric to Shanghai Electric, Arif Naqvi would be a free man today. There is more here than meets the eye. How and why was this deal blocked?”. The media calls Naqvi “Pakistani-born” and “Muslim Bernie Madoff” as a not-so-subtle subtext to racial undertones. The allegations in the indictment and the articles that preceded, read like a movie script. This is geopolitics.

TNS: Naqvi has done some remarkable work for the poor and the downtrodden in Pakistan through his charity. What do you think will define his legacy as he faces a huge challenge from the USA?

BB: If Naqvi is not extradited to the US then he will have another stint in the sun, I am sure. I am equally sure that this time, he will avoid flying towards the sun, as the title of my book implies. Icarus, a figure from Greek mythology, flew too close to the sun, got burnt and fell to earth. He has talked about working for prison reforms and reforms in the justice system. I believe he will still like to serve Pakistan in some capacity and he will write and speak about impact investing in the post-Covid-19 world. Irrespective of what happens to any individual who forms part of this story, the broader lessons about the lengths that states go to protect their interests, disrupt the objectives of other states and reward their own players also matter. The US is quite open in this regard. I give numerous examples in my book, including how US embassies give free advice to any company or country in Africa that intends to enter into a contract with China to point out the pitfalls of such a move. These things will also be part of the legacy of this story. As the world attempts to rebuild after Covid-19 and the US re-engages with the world after the Trump administration’s isolationism, nationalism and proto-fascism, there will be a pressing need to rebuild the movements allowed by globalisation and the more open economies that the reforms of the 1990s set us on the road towards.

When the history of private equity comes to be critically and fairly written for this period, the real story of Abraaj and its destruction will be central to the transformation of an industry by the mainstreaming of a methodology of impact investment. Why does this matter? Why should we care? In the ordinary course of events, the fact that a small group of individuals have been arrested and charged would not be much of a cause for concern for those other than their immediate family and friends. In the hierarchy of the world’s victims, these characters would, after all, come at or near the bottom of the list of things we should care about today. I get that. I did not initially make the connection between Abraaj and Arif Naqvi. I had been aware of Abraaj as being the most successful advocate of impact investing and the promise to utilise private investment to help address poverty and inequality because states and their development agencies had failed at this task for so long. I had studied the way in which the international development industry had failed at its modernisation projects over many decades and written an academic paper on the broader failure of state-led modernisation projects, going as far as to compare them to the projects of Hitler and Stalin in their blindness to human need. But charity had also failed to address the problems of development and compassion fatigue and the limits of charitable reach would also limit its ability to deal with structural problems of inequality. The state is still central to the answer and regional cooperation between states is still vital because if everyone paid their fair share of tax and shared their access to water then many of our most fundamental problems of inequality would disappear. But in the end, it is capitalism that works, not liberalism, not socialism and certainly not communism. As forms of government, they endure, but what each of them shares is the same system for the production, distribution and exchange of goods and services: a market-based one, either openly in non-socialist or communist countries or covertly in command economy systems. It is always mitigated by varying degrees of state provision, by cooperation, by bartering, but it has not been replaced in any system entirely. The profit motive in which individuals maximise their own utility has been proved to work, but it must be managed by a socially conscious state the way the state mitigates the distribution of public goods through intervention so that the distribution of private capital can be mitigated by the way in which the investors behave, by socially conscious corporations. That was the revolution of which Abraaj was a key part and for which Arif Naqvi was a key global advocate. Aside from the obvious injustice that Naqvi and his fellow defendants are being subjected to, this is why we should care and care urgently about this case.

This story also matters because it is geopolitics that has prevented this from taking place. If the US can beat China in the struggle for influence in emerging markets only by taking down private equity firms, then the war has already been lost.


The writer reports for Geo News and Jang Group of Newspapers from London. Twitter: @MurtazaViews, email: [email protected]

“It was in everyone else’s interests that the towers were left to burn”